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Negative Savings Rates On Cash

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nothing good will come of this

how to destroy a currency in one simple step

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Sweden Cuts Deposit Rate to NEGATIVE .25%

There has been a lot of ludicrous recommendations recently to combat deflation by making deposit rates negative. I did not think any central bank would be dumb enough to try it. I thought wrong.

Today, Riksbank, Sweeden's central bank cut the deposit rate to -0.25% effectively charging savers interest on deposited money.

DATE 2/07/2009

The weak development of the economy requires a somewhat more expansionary monetary policy. The Executive Board of the Riksbank has therefore decided to cut the repo rate by 0.25 of a percentage point to 0.25 per cent.

Deep economic downturn

Economic activity abroad is very weak and this hits Sweden hard. Exports have fallen substantially and the situation on the labour market is continuing to deteriorate rapidly. The information received in recent months points to the economic downturn in 2009 being somewhat deeper than the Riksbank forecast in April.

Deposit Rate

The decision on the repo rate will apply with effect from Wednesday, 8 July. The deposit rate is at the same time cut to -0.25 per cent and the lending rate to 0.75 per cent.

Sweden Attempts To Boost Lending

Please consider Sweden cuts rates to new low, offers banks loans.

Sweden's Riksbank cut interest rates to a fresh record low on Thursday and offered banks 100 billion crowns ($13.2 billion) to boost lending as it strives to reverse the country's worst recession since the 1940s.

The central bank lowered its key interest rate by 25 basis points to 0.25 percent in a surprise move, putting official rates at their lowest since records began in 1907, and said it expected rates to remain at that level until late 2010.

"It's a double whammy, or even a triple whammy," said Roger Josefsson at Danske Markets.

"The deposit rates are actually negative now. In some sense they are creating a money machine for banks. You can lend all you want, but don't put that back into the central bank."

Sweden was plunged into recession late last year as the global financial crisis pulled the plug on market demand, leaving firms such as world number two truck firm Volvo scrambling to cut costs and shed jobs.

The central bank forecast the economy will contract 5.4 percent this year and return to tepid growth of 1.4 percent next year.

Broadening its arsenal of policy measures, the Riksbank said it would offer banks loans at a fixed rate as was done recently by the European Central Bank, although it offered unlimited amounts.

The Riksbank will offer 100 billion crowns of fixed interest loans with a maturity of 12 months. It said supplementary measures would ensure monetary policy had the intended effect.

"This should contribute to lower funding costs for the banks and lower interest rates for companies and households," it said.

Deputy Central Bank Governor Barbro Wickman-Parak told a news conference that offering loans at fixed rates to the banks was judged more suitable than purchasing government or mortgage-backed bonds, at least for now.

"Sweden has a very bank-based system," she said.

"Company borrowing, in contrast to the United States, is carried out through the banks and in light of that it is reasonable for us to look first to moving through the banking system when we want to ease credits."

The ECB ended up pouring 442 billion euros ($622 billion) of funds into money markets in its first such operation with a term as long as one year, pushing some bank-to-bank borrowing costs to new record lows.

Punishing Savers

The global economy is in a mess because of the lack of savings not because of an excess of it. People spent money they did not have, pushing asset prices to ridiculous levels. Banks, in belief that asset prices would keep rising exponentially, increased leverage. Now consumers everywhere are retrenching in the wake of the collapse, a much needed phenomenon.

In light of the above, punishing savers with negative deposit rates is the height of stupidity.

It would be fitting if there was an immediate run on deposits. And if that happens what will Sweden do? Halt deposits? Sweden risks (and deserves) a currency collapse and bank runs for this insane effort. Look for capital flight in Sweden.

We should all be rooting for the demise of Sweden lest Bernanke or some other Central Bank clowns try the same thing. The risk is that Sweden does not immediately suffer for this stupidity and that Bernanke tries to do the same thing.

One thing is certain. This is eventually going to blow sky high. Let's hope it does before Bernanke gets the same brilliant idea.

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Here's my problem, this is bad but I do know one trustafarian tithead who this will hurt, and the less of him in the world is a good thing.

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nothing good will come of this

how to destroy a currency in one simple step

link

haha, cash under the matress time in "Sweeden" then...

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Isn't this a good thing because it will combat deflation?

I still can't comprehend how money stores past effort into future wealth. It's an artificial concept leveraging human nature.

Some of us are frugal by nature, others more prodigal. I find it very sad when I read tales of those who lived as tramps and then left a large financial legacy. Wouldn't they have been better off to have used more of their resources to lead more comfortable lives? Or used it during their lifetime in a way that would benefit society somehow.

Hoarding money for the sake of it is to my mind rather pointless. Much as the banks are doing now.

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the blog post is wrong, see other thread. it's still +0.25%, so a change of -0.25%

http://www.riksbank.com/templates/Page.aspx?id=32047

The weak development of the economy requires a somewhat more expansionary monetary policy. The Executive Board of the Riksbank has therefore decided to cut the repo rate by 0.25 of a percentage point to 0.25 per cent. The repo rate is expected to remain at this low level over the coming year. At the same time there are several signs that economic activity will improve.

Deep economic downturn

Economic activity abroad is very weak and this hits Sweden hard. Exports have fallen substantially and the situation on the labour market is continuing to deteriorate rapidly. The information received in recent months points to the economic downturn in 2009 being somewhat deeper than the Riksbank forecast in April.

Low repo rate over a long period of time

A lower repo rate and repo rate path are needed to counteract the fall in production and employment and to attain the inflation target of 2 per cent. The Executive Board of the Riksbank has therefore decided to cut the repo rate to 0.25 per cent. The repo rate is expected to remain at this low level until autumn 2010. The Riksbank’s assessment is that cutting the rate to 0.25 per cent will not threaten the functioning of the financial markets.

.................

The minutes from the Executive Board’s monetary policy discussion will be published on 16 July. The decision on the repo rate will apply with effect from Wednesday, 8 July. The deposit rate is at the same time cut to -0.25 per cent and the lending rate to 0.75 per cent.

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Some of us are frugal by nature, others more prodigal. I find it very sad when I read tales of those who lived as tramps and then left a large financial legacy.

I've said just the same thing myself. Some people here are refusing to buy a house on the basis that, when they die, they will have £50k more in the bank. By not buying something (I assume they'd actually ideally like to buy) they are feeling smug about saving this massive amount of money (and I agree it is a lot of money) but never having what they want (or at least not until 20% of their life has slipped away).

I am a natural saver myself, and I see thousands getting stacked up in my bank account and I'm sitting here thinking "what's the point". That money is meaningless unless I actually do something with it. I would like a bigger family house, I could use that money to get it, so why not? I don't thinking having £50k in the bank when I die is really a good enough reason for not going for what I want today.

If I die with a big wedge in my account, I will only feel that I got things very very wrong. I want to die penniless, not a penny more and not a penny less. Just right ;)!

Edited by Orbital

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Guest DissipatedYouthIsValuable
I've said just the same thing myself. Some people here are refusing to buy a house on the basis that, when they die, they will have £50k more in the bank. By not buying something (I assume they'd actually ideally like to buy) they are feeling smug about saving this massive amount of money (and I agree it is a lot of money) but never having what they want (or at least not until 20% of their life has slipped away).

I am a natural saver myself, and I see thousands getting stacked up in my bank account and I'm sitting here thinking "what's the point". That money is meaningless unless I actually do something with it. I would like a bigger family house, I could use that money to get it, so why not? I don't thinking having £50k in the bank when I die is really a good enough reason for not going for what I want today.

If I die with a big wedge in my account, I will only feel that I got things very very wrong. I want to die penniless, not a penny more and not a penny less. Just right ;)!

That's nice, dear.

If you could put a few funds into my 'Temporary Holiday Away From Labourtopia For The Purposes Of Realising How Lucky I Am To Be Living In Such A Glorious Nation', I'd be very grateful.

I promise to piss it away later on a reasonably priced house.

Edited by DissipatedYouthIsValuable

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I've said just the same thing myself. Some people here are refusing to buy a house on the basis that, when they die, they will have £50k more in the bank. By not buying something (I assume they'd actually ideally like to buy) they are feeling smug about saving this massive amount of money (and I agree it is a lot of money) but never having what they want (or at least not until 20% of their life has slipped away).

I am a natural saver myself, and I see thousands getting stacked up in my bank account and I'm sitting here thinking "what's the point". That money is meaningless unless I actually do something with it. I would like a bigger family house, I could use that money to get it, so why not? I don't thinking having £50k in the bank when I die is really a good enough reason for not going for what I want today.

If I die with a big wedge in my account, I will only feel that I got things very very wrong. I want to die penniless, not a penny more and not a penny less. Just right ;)!

Good luck with the whole "knowing when you are going to die" thing.

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I've said just the same thing myself. Some people here are refusing to buy a house on the basis that, when they die, they will have £50k more in the bank. By not buying something (I assume they'd actually ideally like to buy) they are feeling smug about saving this massive amount of money (and I agree it is a lot of money) but never having what they want (or at least not until 20% of their life has slipped away).

I am a natural saver myself, and I see thousands getting stacked up in my bank account and I'm sitting here thinking "what's the point". That money is meaningless unless I actually do something with it. I would like a bigger family house, I could use that money to get it, so why not? I don't thinking having £50k in the bank when I die is really a good enough reason for not going for what I want today.

If I die with a big wedge in my account, I will only feel that I got things very very wrong. I want to die penniless, not a penny more and not a penny less. Just right ;)!

Your attitude will change when you have kids, young man.

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If I die with a big wedge in my account, I will only feel that I got things very very wrong. I want to die penniless, not a penny more and not a penny less. Just right ;)!

Interesting point. I've been thinking the same type of thing recently. What with having no family of my own there would be no point in croaking it with loads of assets/money in the bank. I have been thinking that in a few years time (if we do actually make it through this recession) when I reach 50, I may try to sell my property and move into rented accommodation. Theoretically, this will give me plenty of money in the bank to rent somewhere nice and afford to pay someone to do all the chores. The big problem is trying to predict the future as regards the possibility of inflation taking my net worth down to zero before 'I'm ready'.

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Your attitude will change when you have kids, young man.

I've got children. My attitude hasn't changed. Sure I save a bit for a pension, but by nature I'm a live for today person. I don't see the point of accumulating cash for its own sake.

Biggest problem with having children is making sure you earn enough to provide for them. It is nice to treat them as well as you can afford to. But I've no intention of accumulating cash just to be able to bequeath it.

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I've said just the same thing myself. Some people here are refusing to buy a house on the basis that, when they die, they will have £50k more in the bank. By not buying something (I assume they'd actually ideally like to buy) they are feeling smug about saving this massive amount of money (and I agree it is a lot of money) but never having what they want (or at least not until 20% of their life has slipped away).

I am a natural saver myself, and I see thousands getting stacked up in my bank account and I'm sitting here thinking "what's the point". That money is meaningless unless I actually do something with it. I would like a bigger family house, I could use that money to get it, so why not? I don't thinking having £50k in the bank when I die is really a good enough reason for not going for what I want today.

If I die with a big wedge in my account, I will only feel that I got things very very wrong. I want to die penniless, not a penny more and not a penny less. Just right ;)!

Got to agree with this, mostly - I love to save a wad but I also want my balance to be near zero when I die.

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Got to agree with this, mostly - I love to save a wad but I also want my balance to be near zero when I die.

I'd be quite happy to have zero balance when I die, but what do I live on in the years where I cannot find/or am able to work? It's a bit harsh when so many here slag boomers off for not providing for their own old age, and then celebrate when saving for retirement actually becomes taxable!

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